How Did Estonia Become A Leader In Technology?

WHEN Estonia regained its independence in 1991, after
the collapse of the Soviet Union, less than half its
population had a telephone line and its only independent link to
the outside world was a Finnish mobile phone concealed in the
foreign minister's garden. Two decades later, it is a world
leader in technology. Estonian geeks developed the code behind
Skype, Hotmail and Kazaa (an early file-sharing network). In 2007
it became the first country to allow online voting in a general
election. It has among the world’s zippiest
broadband speeds and holds the record
for start-ups per person. Its 1.3m citizens pay for parking
spaces with their mobile phones and have their health records
stored in the digital cloud. Filing an annual tax return
online, as
95% of Estonians do, takes about five minutes. How did the
smallest Baltic state develop such a strong tech culture?

The foundation was laid in 1992 when Mart Laar, Estonia’s prime
minister at the time,defibrillated
the flat-lining economy. In less than two years his young
government (average age: 35) gave Estonia a flat income-tax, free
trade, sound money and privatisation. New businesses could be
registered smoothly and without delays, an important spur for
geeks lying in wait. Feeble infrastructure, a legacy of the
Soviet era, meant that the political class began with a clean
sheet. When Finland decided to upgrade to digital phone
connections, it offered its archaic 1970s analogue
telephone-exchange to Estonia for free. Estonia declined the
proposal and built a digital system of its own. Similarly, the
country went from having no land registry to creating a paperless
one. “We just skipped certain things…Mosaic [the first popular
web browser] had just come out and everyone was on a level
playing field,” recalls Toomas Hendrik Ilves, the president. Not
saddled with legacy technology, the country's young ministers put
their faith in the internet.

A nationwide project to equip classrooms with computers followed
and by 1998 all schools were online. In 2000, when the government
declared internet access to be a human right, the web spread into
the boondocks. Free Wi-Fi became commonplace. Rubber stamps,
carbon paper and long queues gave way to “e-government”. The
private sector followed: the sale of Skype to eBay in 2005, for
$2.6 billion, created a new class of Estonian investors, who made
tens of millions of euros from their shareholdings—and have been
putting their experience, and their windfalls, to good use. Today
Tehnopol, a business hub in Tallinn, the perky capital, houses
more than 150 tech companies. Given the country’s tiny domestic
market, start-ups have been forced to think global, says Taavet
Hinrikus, Skype’s first employee and co-founder of TransferWise,
a peer-to-peer money-transfer service whose customers
are spread across Europe and America. According to the World
Bank, over
14,000 new companies registered in Estonia in 2011, 40% more
than during the same period in 2008. High-tech industries now
account for about 15% of GDP.

How can other countries—that lack Estonia's small size and its
clean sheet—follow its example? “It’s sort of obnoxious to say,
‘Do what we did’,” says Mr Ilves. But he submits that Estonia’s
success is not so much about ditching legacy technology as it is
about shedding “legacy thinking”. Replicating a paper-based
tax-filing procedure on a computer, for instance, is no good;
having such forms pre-filled so that the taxpayer has only to
check the calculations has made the system a success. Education
is important, too: last year, in a public-private partnership, a
programme called ProgeTiiger (“Programming Tiger”) was announced,
to teach five-year-olds the basics of coding. “In the 80s every
boy in high-school wanted to be a rock star,” says Mr Hinrikus.
“Now everybody in high-school wants to be an entrepreneur.”